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Labor-Market Power, Deadweight Loss, and Technology Adoption

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  • Michael Rubens

Abstract

Buyer power can induce deadweight loss, but it can also incentivize buyers’ technology adoption by reducing investment holdup. In this paper, I construct a structural model that incorporates these two opposing forces, and use it to quantify the net welfare effects of employers’ market power over their workers. Applying the model to the late-19th-century Illinois coal mining industry, a textbook monopsony example that experienced a large technological shock due to the invention of mechanical cutting machines, I find that an increase in employer power would have induced substantially higher mechanization rates. Assuming exogenous capital investment leads to overestimating the consumer and labor welfare losses from employer power by 13% and 7%.

Suggested Citation

  • Michael Rubens, 2022. "Labor-Market Power, Deadweight Loss, and Technology Adoption," NBER Working Papers 30586, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:30586
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    Cited by:

    1. Michael Rubens, 2023. "Management, productivity, and technology choices: evidence from U.S. mining schools," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 165-186, March.

    More about this item

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • N52 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - U.S.; Canada: 1913-

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